Charging Late Payment Fees on Invoices

On average Canada small businesses spend 15 days a year collecting late invoice payments, that’s about 120 hours a year, time which could be used to grow your business or take a bit of time for yourself.

Businesses expect to deal with 54% of late payments. Charging late payment fees will encourage clients to pay on time and add a little extra money to the bottom line when invoices become overdue. 

The maximum allowable interest rate in Canada is 4% typical rates vary between 1.5% and 4%. For ease of use, we use 2%.

Adding Payment Terms to Your Invoices

At the bottom of each invoice in the MEMO Section (You can set this up in your invoice template)

“Payment of this invoice is due within 30 days. Please be advised that a monthly late fee of 2% of the total amount due will be charged on overdue payments. Payments are considered overdue when they are submitted more than 30 days after this invoice is issued.”

Issuing an Invoice for a Late Payment Fee

Once an invoice reaches 31 days (assuming your payment terms are 30) you will complete the following steps. 

Create a new Invoice for this payment

1. 1. In the description write “Late Payment Interest for Invoice X”
   2. Quantity is the total amount of the invoice 
   3. Rate is 0.02
   4. This will give you the amount 
   5. Sales Tax is out of scope
   6. Save and send the invoice

Take control of your small business' cash flow. Add late payment fees to your invoices today. Avoid the hassle of chasing payments and make the most out of your time and revenue.

Need help operationalizing your small business? Get in touch with us today.